Sunday, November 30, 2008

Thinking Out of the Box

From The Mature Mind by Gene D. Cohen, M.D., Ph.D. Chapter 1:

"My In-Laws, Howard and Gisele Miller, both in their seventies, were stuck. They had just emerged from the Washington, D.C., subway system into a driving snowstorm. They were coming to our house for dinner and needed to catch a cab because it was too far to walk - but it was rush hour, and no cabs stopped. Howard tried calling us to get a lift, but my wife and I were both tied up in traffic and weren't home yet.

As his fingers began to turn numb from the cold, Howard noticed the steamy windows of a pizza shop across the street. He and Gisele marched through the slush, entered the shop, stepped up to the counter, and ordered a large pizza for delivery. When the cashier asked where to deliver it, Howard gave him our address, and added, "Oh, there's one more thing."
"What's that?" the cashier asked.
"We want you to deliver us with it," Howard said.
And that's how they arrived - pizza in hand - for dinner that night."

Charles

Thursday, November 27, 2008

The Rational (Cognitive) Versus Emotional Side of the Brain

I listened to WNYC's hour long RadioLab on "Choice", and was so intrigued that I listened to it again. Two things that I most remember from this amusing show on how we make choices or don't make them is how the rational side of the brain can be overwhelmed so that we start making impulsive, emotional choices, and that without emotional, we can not make any choice at all, at least not easily.

Baba Shiv conducted an experiment on two groups. One group was asked to memorize two numbers, and then walk to another room to recite those two numbers. The second group did the same thing, but had to memorize seven numbers. Before they could reach the other room to recite their numbers, a lady stopped them and ask if they would like chocolate cake or a fruit salad as a reward for doing the experiment. 63% of the group that memorized seven numbers chose cake, while only 41% of the two number group chose cake. It is theorized that memorizing seven numbers dampened the rational side of the brain; thus allowing this group to make a more emotional, impulsive choice of cake. The two number group, however, made a more rational or healthy choice of fruit.

This may have some application in trading performance. If we flood our brain with too much data, such as seven different indicators, before making a trading decision, we may be exposing ourselves to a more emotional and impulsive trade decision than we realize. A more rational decision may be made with less data rather than more.

The RadioLab on Choice also demonstrated that without emotion, we can not make any decision at all. So, what we really need is a balance between our rational and emotional side of our brain to make good decisions. We do not want to totally suppress our emotions, and at the same time, we do not want to flood our brains with too much data. Less data is actually better for rational decisions.

Charles

End-of-Day Charts 11/26/08





Charles

Wednesday, November 26, 2008

Mid-Day 11/26/08


The market turned out to be more bullish than I anticipated. On the 5 Minute Chart, the trend of the $TICK never did turn bearish after 0945 ET.
Charles

PreMarket 11/25/08


Following the 0830 ET reports, the market has traded below yesterday's low and Value Area. Both the Value Area and TPO may act as resistance today. Bond markets close early for Thanksgiving, and I suspect many traders are either taking an early holiday today, or will stop trading at lunch and head for grandma's house for the holiday.
Charles

Tuesday, November 25, 2008

End-of-Day 11/25/08



We did end up with a more narrow range, balance day. Today was not an inside day, but slightly higher in value than yesterday. Watch for any high volume breakouts tomorrow.
Charles

Mid-Day Divergence 11/25/08




It has been a while since we had a good divergence between the futures and $TICK, maybe because of the extreme volatility. But here is a good one indicating the end of a 62% correction.
Charles

Mid-Day 11/25/08



Today's NYSE Advance - Decline Line is lower than yesterday's indicating some profit taking of long swing traders.



The market has found support at the 33% correction level of yesterday's range. We are getting a more narrow range than yesterday with resistance just above yesterday's high.


If we stay in this narrow range, we will get a balanced day, in which look for a possible breakout tomorrow. However, tomorrow and Friday should see reduced volumes as Americans start thinking about Thanksgiving and Black Friday.

Charles

PreMarket 11/25/08


Overnight, the market has found support in the middle of yesterday's Value Area, which is also the top of a consolidation zone created between 1000 and 1400ET yesterday. Up to now, the market has not traded above yesterday's high.
Will be watching the reaction to the 0830 and 1000 ET economic reports.
Charles

Monday, November 24, 2008

End-of-Day 11/24/08



The market is also in the bottom section of a 6 week consolidation zone. In the next day or two, we will see how strong the bulls are.



Charles

Morning Review 11/24/08




The long-term shorts have finally decided to start liquidating, at least for this morning. It's nice to see a run-away market to the upside for a change. If the market closes in the top 25% of today's range, tomorrow should be a more narrow range day with tests of the highs.
Charles

Cumulative $TICK




For a 1 minute chart, I format $TICK for 30 days, and for a 15 minute chart, I format $TICK for 300 days (as shown above).
Charles

Sunday, November 23, 2008

Ray Barros's Thirty Year Journey

Ray Barros has graciously shared his thirty year journey toward becoming a consistently profitable trader. He parallels his journey to that of a Hero's Journey or Quest as described by Joseph Campbell. A good read for all traders.

  1. A Hero's Quest I
  2. A Hero's Quest II: The Call
  3. The Hero's Quest III: The Journey Begins & Progresses
  4. The Hero's Quest IV: The Final Lessons

In addition:

Success Lessons We Need to Learn

Charles

Saturday, November 22, 2008

Awareness and Attention

I would like to thank Martin who works on behalf of Transport for London (TFL) for bring the video "Test Your Awareness: Whodunnit?" to my attention.

As the video plays, things get changed. Do you notice the changes? The video also shows you how the changes were made as the scene is filmed. Really neat!

Charles

Weekend Review and an Earth Rise 11/22/08

I'm starting to collect data on the ESH09 contract in preparation of the 12/11/08 roll over.

The market Friday developed a rather large volume support base between 764.75 and 746.75 with the TPO near 754. The market should test the 754 area again and maybe the low of 739. Bear sentiment does not give up that easily. Actually, the low will probably be tested many times over the next 8 month period, if history repeats.



Both Range Volatility and Downward Price momentum is decreasing.



All sectors are still weak with relative strength still being with the Staple Stocks.







video

Thought that I would leave you with an Earth Rise over the Moon's horizon as taken by Japan's Selene or Kaguya moon probe.

Have three new books to read:

  1. The Mature Mind by Dr. Gene D. Cohen, M.D., Ph.D.
  2. Pragmatic Thinking & Learning by Andy Hunt
  3. Outliers by Malcolm Gladwell

Also rereading Chapter 7 "Short Term Trading" in Markets in Profile by James and Robert Dalton and Eric Jones.

Rest, relax and have a nice weekend everyone, and prepare yourself for battle on Monday morning.

Charles

Friday, November 21, 2008

Mid-Day Review 11/21/08




The Intra-Day Indicators are more bullish than they have been for a long time. The market has spent most of the day in a Happy Zone, which is currently being tested on the top boundary. Due to the slightly more bullish nature of the market, we got a nice bounce to the upside after testing yesterday's low. I'm sure new buying is reluctant considering the market's tendency lately to fall to new lows at the end of the day.
Charles

PreMarket 11/21/08



At first glance, the overnight market looks like a positive bounce off yesterday's lows. However, it is still just a 50% correction of yesterday afternoon's bear impluse wave. Also, the market is still at the bottom of yesterday's Value Area and below the TPO.

The one positive is that the market is currently above the 2002 low. A close above yesterday's high would be a major positive. The market has to trade through the Value Area first, however.



The Cumulative $TICK is still in free fall mode.



And the market is still putting more weight in staple stocks over discretionary stocks.

There are no economic reports today.

Charles

Thursday, November 20, 2008

Illusions of Movement from Still Images





Scientific American has an article on the illusion of movement from still images. These two are my favorites.
Charles

Analysis of This Blog

Here is the Typealyzer for this blog. Actually, they have described me fairly well.

ISTJ - The Duty Fulfillers

The responsible and hardworking type. They are especially attuned to the details of life and are careful about getting the facts right. Conservative by nature they are often reluctant to take any risks whatsoever. The Duty Fulfillers are happy to be let alone and to be able to work int heir own pace. They know what they have to do and how to do it.

Charles

End-of-Day 11/20/08



Well folks, there is a small support ledge just below 500.00 for the S&P 500 Index.
Charles

A Fibonacci Morning With a Test of the 2002 Low


Charles

Bears and the S&P 500



We are quickly testing the 2002 low of 768.67.




In 2002, the market took 2 Years and 7 months to reach its low from the previous all-time high. The bottom was tested over an 8 month period with decreasing volume.



Currently, the market has traveled almost the same distance as 2000 - 2002, but in half the time. We are starting to see decreasing volume, but have not yet seen the bounces off the lows like in 2002, at least not on the weekly chart view.



Can see bounces in the daily chart view though.

Charles

Wednesday, November 19, 2008

How Low Will This Market Go? 11/19/08

I'm beginning to wonder just how low will this market go. I thought that the market would entice buyers after testing 818. It did bounce 18 points, but then the market just gave up and tumbled. I'm not sure that we have seen capitulation yet. Still not enough pessimism, even in this dismal market. The market could very well remain sour until next July.
Charles

PreMarket 11/19/08



The market overnight is staying above the 50% correction level of yesterday afternoon's up wave, which is also the middle of yesterday's Value Area.





However, the Cumulative $TICK, NYSE Advance - Decline Line and the Staples/Discretionary Ratio all show a bearish market.
Charles

Tuesday, November 18, 2008

End-of-Day 11/18/08




The longs are now in-the-money, and the shorts are being squeezed with today's close being near the top of the range. Again, the recent bottom has attracted short covering and/or new buying into the market.
Charles

Mid-Morning 11/18/08


Charles

PreMarket Review 11/18/08


The overnight market is well below yesterday's Value Area and below the Value Area of 11/13/08. When the market tests these areas, pay attention to the market response.
Notice how when the market yesterday afternoon around 1544 ET finally broke past the bottom of the narrow, consolidated range, the market then corrected back to the moving averages before continuing its downtrend. This is a common pattern. The market either changes trend direction or brakes a narrow range, then corrects back to the moving average before continuing in the direction of the new trend.
PPI at 0830 ET
Treasury Intenational Capital at 0900 ET
Housing Market Index at 1300 ET
Malcolm Gladwell has a new book coming out today called Outliers.
Charles

Monday, November 17, 2008

End-of-Day 11/17/08



The Cumualative $TICK is making new lows as the market is testing the previous lows.




Charles

Morning 11/17/08


Market is meandering in a relatively tight range. Don't let quiet markets put you to sleep, since they have a tendency to perk up when least expected.
Charles